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How to Think About Your Employee Turnover Rate

The three metrics you should be tracking around employee turnover

Empty urban office
Image courtesy of Raj Rana

What is employee turnover?

Employee turnover is the loss of employees over a designated period time. There are two types of turnover.

Voluntary: when an employee leaves of their own accord for a job change, personal reason, or retirement

Involuntary: when employment is terminated as a result of poor performance, a reduction in force, or changing business needs

How do you calculate turnover rate? 

Employee turnover rate, sometimes called separation rate, is an essential HR metric that provides an organization with one view of its overall health. To calculate employee turnover rate, you need the total number of employees who separated and average headcount for the period (calculated by adding beginning headcount for the period to ending headcount for the period and then dividing by two). 

In 2019, 14 employees separated from THE Company. There were 100 employees at the beginning of 2019 and 110 at the end of 2019.

Average headcount = (beginning headcount + ending headcount) / 2   

(100+110) / 2 = 105

Annual turnover rate = (total number of employees separated / average headcount) x 100

(14/105) x 100 = 13.33%                                                                

Employees who are on temporary leave, such as parental leave, short- and long-term disability, or sabbatical should not be included in the turnover rate calculation, as these persons are still employed but inactive.

What’s a normal turnover rate?

According to the 2019 U.S. Mercer Turnover Survey Mercer Survey, the average turnover rate for U.S. companies is 22 percent (this number includes both voluntary and involuntary separations). The same survey also produced the following results broken down by geographic location, industry, and job function.

  • The South Central region has the highest total turnover rate at 43.2 percent.

  • The Northeast region had the lowest total turnover rate at 20.8 percent.

  • The retail and wholesale industry has the highest voluntary turnover rate at 37 percent. 

  • Job functions with the highest voluntary turnover rates are customer service at 17 percent, manufacturing operations at 15 percent, and sales at 14 percent.

The cost of employee turnover

A high employee turnover rate usually comes at a high cost to the organization. The Society of Human Resource Management (SHRM) estimates the cost to replace an employee is about one-third of their annual salary. Sixty-seven percent of this are soft costs, like loss of productivity and job knowledge, and 33 percent are hard costs, such as recruiting, background screenings, and paying temporary workers.

Not all employee turnover should be viewed negatively—average turnover rates can be higher depending on industry, geography, job type, and seniority level. For example, if you work in an industry where turnover is high and your organization is maintaining an average below that of your competitors, this is not necessarily an indication of bad turnover. The size and age of your organization can also mean that some turnover is good: For small businesses in particular, regular turnover can help you evolve, deliver more benefits than costs, and attract creative people. Plus, former employees can be the best advocates.

Read more: How to Boost Employee Satisfaction with One Regular Practice

Analyzing employee turnover

Averages alone do not tell the complete story of why your organization may be experiencing a high turnover rate. 

To develop effective solutions to curb your organization’s turnover, you must first determine why employees are leaving, which employees are leaving, and when employees are leaving. Don’t forget to quantify your results.

Why employees are leaving

The Mercer Turnover Survey reports the top reasons U.S. employees voluntarily leave an organization are:

  • Better job opportunity: 81%

  • Personal/family reason: 62%

  • Relocation: 41%

  • Better base salary: 39%

  • Career change: 29%

To identify why your employees are leaving, conduct exit interviews and exit polls that ask your employees why. Keep in mind that not all employees will feel comfortable being completely honest about why they’re leaving, so providing private or even anonymous channels for employee feedback is imperative. You can also consult employee reviews on third-party sites to get a sense of why, which, and when employees are experiencing dissatisfaction. 

Additionally, don’t wait until your employees are walking out the door to find out why they may be unhappy. Provide channels for employees to give regular qualitative and quantitative feedback (more on that here) and train managers to gauge team morale.

Read more: Why Employee Reviews Are Critical to Your Brand Management Efforts

Which employees are leaving

While the “why” is an important data point, collecting and analyzing the data on who is leaving is just as important. 

For example, higher than average turnover on a particular team can point to issues with the manager. If certain demographics (age, gender, race/ethnicity) are leaving at a higher rate, it’s likely there are organizational issues with culture and inclusion.

One geographic location experiencing higher turnover than others doing the same work could be attributed to the fact that the physical location of the worksite is not as desirable as others.   

If employees in a particular role or with a specific skill set are leaving at a higher rate, the issue could be that the work doesn’t have clear objectives or that there aren’t enough opportunities for advancement on that career track. 

When are employees leaving

It is also important to know at what point in the employees’ tenure they’re leaving your organization. 

The reasons why long-standing employees, mid-level employees, and employees who have been in your organization for less than two years are leaving the company may be very different.   

Employee retention tips

Knowing your organization’s why, who, and when will determine which retention strategies will be most effective in improving your turnover rate, but here are some ideas to get you started.   

  • For example, if you’re backfilling the same position(s) repeatedly, take a look at your hiring process and ensure you’re hiring the best talent first and onboarding them effectively.

  • Almost 40 percent of employees leave for better pay, so offering competitive pay, benefits, and incentives is imperative. You can also document criteria for earning bonuses and raises so employees are clear on how they can boost their pay.

  • Make sure your leaders are properly trained and regularly reviewed by their peers and by those they manage. Provide confidential channels for escalating concerns, like discrimination or harassment.

  • Foster a culture of open communication and stay engaged with your employees so you can identify at-risk employees you don’t want to lose early on.

  • Eighty-one percent of employees leave for a better job opportunity, so save the best talent by transferring them to a team that may be a better fit or promoting internal talent, which can save on hiring costs and boost employee morale. (Learn how to coach direct reports off your team and toward their goals.) Document criteria for advancement so team members are clear on what it takes to earn a promotion.

  • If you’re losing talent to relocation, consider offering the ability to work remotely (and take care of those remote employees).

  • Address low employee morale and low productivity on teams that have experienced above average turnover so that you don’t lose other top performers. This is why regular measurement of turnover and collection of the why, who, and when of lost employees is key.

 Read more: How to Write Core Values for the First Time 

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